Author Interviews


As the Federal Reserve chairman spanning four presidencies, Alan Greenspan was right in the middle of the last government shutdown in 1995. In his view, this shutdown should never have happened.

ALAN GREENSPAN: Well, I sympathize with a great deal of what basically the minority was arguing for. The tactics, in my view, were unadroit, if I may coin a new term. It wasn't necessary. We do live in a democratic society. We do pass lies. We all abide by them. And that's the way we ought to function. When we don't, we run into trouble. And that's what's happened in this case.

MONTAGNE: Alan Greenspan has spent a lot of time lately thinking about the run up to crisis. He has a new book coming out called "The Map and the Territory." It's partly a reflection on the difficulty of economic forecasting and why he didn't anticipate the economic collapse of 2008.

GREENSPAN: On September the 15th, 2008, the day that Lehman Brother went into default and the whole structure of the international finance collapsed within hours or minutes, none of the forecasters of note - the Federal Reserve, the IMF, J.P. Morgan, and I can go through a whole series - none actually caught it.

MONTAGNE: With due respect, there were plenty of journalists who predicted the disaster as early as the early 2000's. You know, based on nothing more than the widespread disappearance of what any regular person would call best practices - predatory lending, borrowers who didn't have to document their ability to pay, incomprehensibly complicated financial investments. Why do you think that the people at the top didn't see this?

GREENSPAN: Well, it's not that we didn't see it. I, for example, was saying in 2001, 2002, that the big surge in housing financed by mortgage debt can't continue. But it went on for four more years. One of the things I try to designate in the book is why it is so difficult to catch these actual crisis periods. I probably could have caught a number of different crises.

I came very close in the dotcom boom. I did not come close at all on the housing boom. You're talking in terms of the roof was falling, and after a while you stop saying so, because the roof never fell.

MONTAGNE: Hmm. After September 15th, 2008 and the collapse of Lehman Brothers, which you describe in the book as a once in a lifetime event, in that case you said this was the rare right situation to impose certain regulations and to take some extreme measures that you would not recommend...


MONTAGNE: ...generally speaking, offering government bailouts, for one thing.


MONTAGNE: There are many who would've said that more regulations would've helped.

GREENSPAN: No. I think everybody in the regulatory area had estimated requirements for capital of banks which turned out to be much too low.

MONTAGNE: Banks were undercapitalized.

GREENSPAN: Very much so.

MONTAGNE: I mean are you saying that the banks will now look at the history of this and say, well, we have to have more money on hand

GREENSPAN: They may or may not, but I'm basically saying you'd need government regulation to set up the capital standards because most banks, as I've seen, will fight endlessly trying to get as little capital requirements as possible. If you're thinking in terms of the period when we all thought that people acted in their long-term self-interest, you can demonstrate in that hypothetical case that you need no regulations at all.

It will be automatic. But that's not the way the world works. The premises that I believed prior to 2008, I had to discard because the evidence definitely said I was wrong.

MONTAGNE: Although you do call for lifting what you would call the burden of massive new financial regulations. You say you want to be put back into a mode of creative destruction.

GREENSPAN: The only way you get economic progress, real standards of living moving higher, is to have the savings of the society continuously invested in the cutting-edge technologies. And those technologies which are obsolescent get dropped out. That's the destruction part of creative destruction. But that has a downside to it. There are winners and there are losers.

And as much as we would like to help the losers, if we do it in the way that directs the limited capital of the society to support the low productivity parts of the economy, it means that the rest of the economy, it means that the rest of the economy - our overall standard of living - will not rise as much as it could. So that is a very difficult trade-off here.

MONTAGNE: Alan Greenspan's new book is "The Map and the Territory: Risk, Human Nature, and the Future of Forecasting." He was chairman of the Federal Reserve from 1987 to 2006. Thank you very much for joining us.

GREENSPAN: Delighted to be with you.


MONTAGNE: You're listening to MORNING EDITION from NPR News.


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